Friday, November 5, 2010

However, the Fed's plan has weakened the dollar further pushing up Asian currencies and heigthening the risks of a currency war. South Korea, Brazil and Indonesia among others have intervened unilaterally in recent weeks to curb the rise in their currencies.

The weakening greenback has prompted warnings of a wave of protectionism and capital control measures by Asian nations to stave off so-called hot money, potentially inflaming tensions ahead of next week's Group of 20 summit in South Korea.

Xia Bin, a member of the Chinese central bank's monetary policy committee, branded the stimulus plan "abusive" and warned it could spark a new global downturn.

"If there is no restraint in issuing major global currencies such as the US dollar, the occurrence of another crisis is inevitable," he said in a Beijing News report.

He called on developing countries to impose capital control measures to "prevent hot money inflows from impacting their economy".

The Bank of Korea warned that inflows of foreign cash had gathered pace in recent months but could abruptly change direction.